Consumer complaints about mortgage penalties pile up

Consumer complaints about mortgage penalties pile up

The Bank of Canada's record-low interest rates have been in place for almost a year and during that time, consumer complaints about mortgage prepayment penalties have been steadily rising.

A story in the Globe and Mail says the Ombudsman for Banking Services and Investments (OBSI) has opened 301 new consumer complaints in the quarter that ended in January, which is twice the number seen in the same quarter last year and almost triple the number seen in 2008.

Hein Moes, an Invis broker in Victoria, says lenders will not bend on interest rate differential (IRD) penalties when interest rates are so low, causing many clients to opt out of refinancing for a better rate.

"I don't know when we're going to see some release in that department," said Moes. "If you can't save your penalty before the original maturity date of the mortgage, then you really have to have a hard look at whether you want to do it or not. And even if you take the best discounted deal with the same lender, they're going to want to see compensation from that."

In the latest federal budget, Finance Minister Jim Flaherty said he will standardize how prepayment penalties are calculated and disclosed to consumers, but details have not yet been revealed.

Douglas Melville, the head of the OBSI, told the Globe in most cases the lender's disclosure is clear, but there are some instances when the customer's argument has legs.

"At the moment, we have about a dozen case files still open where some form of compensation is likely to result," Melville said. "We believe compensation is warranted due to a lack of clear disclosure by the firm of the prepayment penalty calculation."


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  • LB 2010-03-18 3:51:01 AM
    To effectively reduce the number of complaints regarding mortgage prepayment penalties, mortgage brokers should be explaining the terms of the mortgage to their clients prior to the clients signing at the lawyer's office. I believe it is the mortgage broker's responsibility to understand their clients needs and to fully outline the benefits and detriments of each product. Explaining the prepayment penalties that could arise from early payout is a major topic of discussion, especially if it appears that the client may be looking to refinance/renew early. Providing the appropriate product should help satisfy the client's current needs, and potentially their future needs.
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  • LB 2010-03-18 3:51:44 AM
    (pressing enter obviously doesn't skip down a line but submit's the message here...)
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  • LB 2010-03-18 3:56:11 AM
    Obviously you can't anticipate what your client is going to do in the future and you will never truly understand ALL of their needs, but explaining all of the terms of the products that you select for them will allow them to make an informed decision, prior to placing the mortgage and throughout the term of the mortgage. By educating them and providing sound advice you should be able to help alleviate some of the burden of unnecessary complaints. And, from the lender's point of view, penalties are required to make their investments attractive enough to their investors so that there are plenty of mortgage products available. Without these products mortgage brokers would have an even tougher job. Take care all, sorry about the multiple posts here.
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